'Fiscal cliff' deal becomes law as new Congress meets

US President Barack Obama signed a contentious "fiscal cliff" deal into law Wednesday night as the 113th US Congress convened for its first session on Thursday, set to tackle tough issues including gun control, tax reform and the US debt.

With nearly 100 new members, the US Congress convened Thursday fresh from the year-end "fiscal cliff" fiasco, as lawmakers cast a wary eye towards the tough budget battles ahead.

Twelve freshman senators and 82 newly-elected lawmakers in the House of Representatives took the oath of office, eager to make the 113th Congress more productive than the 112th, whose two years were marred by mind-numbing partisan gridlock and record public disapproval.

President Barack Obama's Democrats enjoyed modest gains in both chambers, but the balance of power remains divided on Capitol Hill: Democrats control the Senate, while Republicans hold sway in the House, where John Boehner kept his job as speaker.

There was little expectation that he would lose the leadership role, but Republican infighting over backing a fiscal cliff deal that hikes taxes on the wealthy triggered speculation about Boehner's hold on the gavel.

Lawmakers burned the midnight oil as they approved a deal to prevent $500 billion in tax increases and spending cuts from kicking in on January 1, and possibly tipping the US economy back into recession.

But larger budget battles are on the horizon, particularly over US borrowing, an extension of the government's 2013 budget, and the now-looming spending reductions set to hit the Pentagon and most domestic programs.

Financial markets in Europe and the US cooled Thursday over the last-minute agreement, after initial stock surges greeted the deal Wednesday.

But in Japan, the Nikkei jumped three percent early Friday, the first trading day of the year, largely on optimism over the agreement.

Senate Minority Leader Mitch McConnell welcomed the new members, and offered warm words to fellow Republican Senator Mark Kirk who made an emotional return Thursday after spending most of 2012 recovering from a stroke.

McConnell quickly turned to what he called "the transcendent challenge of our time:" runaway federal debt.

He acknowledged his last-gasp deal forged with Vice President Joe Biden was an "imperfect" one that went against Republican no-new-taxes orthodoxy.

But with the battle over taxes behind them -- the deal raises rates on individuals earning over $400,000 and on couples earning more than $450,000 -- McConnell was eyeing the coming bout over spending and the debt ceiling.

"It's time to face up to the fact that our nation is in grave fiscal danger, and that it has everything to do with spending," he told the Senate, throwing down the gauntlet to Obama.

"The president knows as well as I do what needs to be done. He can either engage now to significantly cut government spending or force a crisis later," McConnell added. "It's his call."

Obama resumed his Hawaii vacation hours after Congress approved the fiscal cliff deal late on New Year's Day, and signed it into law Wednesday by auto pen.

But Biden was on hand to swear in the new senators, including five women, bringing to a record 20 the number of female senators, as well as Tim Scott, the first black Republican in the Senate since 1979.

Biden told AFP that his advice to the freshmen was to "enjoy it," adding that he missed the chamber where he served for 36 years.

Asked about the looming fiscal fights, Biden expressed confidence that the White House and lawmakers would overcome their differences.

"We've always had the battles, and we get through," he said.

Senate Majority Leader Harry Reid, who had fractious clashes with McConnell and Boehner during the fiscal cliff negotiations, said his party will hold firm during the coming budget debates.

"Democrats will continue to stand strong for the principle of balance," he said. "Any future budget agreements must balance the need for thoughtful spending reductions with revenue from the wealthiest among us and closing wasteful tax loopholes."

The deal averted a financial crunch that had global repercussions, but the International Monetary Fund, rating agencies and analysts have warned that the critical problem of deficits and debt still hang over the US economy.

The hard-fought agreement, seen as a political victory for Obama, raised taxes on the rich and delayed the threat of $109 billion in automatic spending cuts for two months.

But analysts say the country could see a repeat of the 2011 row that saw Washington's credit rating downgraded for the first time.

Nancy Pelosi, re-elected to her role as House Democratic leader, took a conciliatory tone in the opening hour of the new Congress.

"I hope with all my heart that we find common ground," she told the chamber.